Islamic markets seen leading global trade volumes

Emerging and Islamic markets are expected to lead a growth in global trade volumes over the next fifteen years as non-traditional markets in Asia and Latin America drive demand, said a senior executive at HSBC's Islamic arm.

Global trade volumes are expected to jump 73 percent to $49 trillion with Malaysia, Indonesia and the UAE emerging as major trade players, according to HSBC Amanah’s recent trade forecast, said Romy Buchari, senior manager of global commercial banking, in an interview with Reuters on Sunday.

Muslim countries will account for 5 percent of the world’s trade by 2025, with Egypt projected to play a larger role in Islamic trade finance as the regulatory environment improves in the country.
“We see 88 percent growth (in trade volumes) in Malaysia. In more nascent markets, that is even higher,” he said. “In Egypt, we see 270 percent growth, Indonesia is 144 percent and the UAE is 126 percent.”

The commodity-based exports of emerging and Islamic markets, which include coal, steel and various types of oil, are in high demand from trading partners in India, Brazil and China, driving future growth in trade activity.

“The big markets have an insatiable appetite for these products,” Buchari said. “These will be continuing to grow as a bigger part of Islamic trade routes besides American and European nations.”

Asia to Middle East trade flows more than doubled between 2005 and 2008, according to the World Trade Organization.

Buchari expects 2 percent trade volume growth over the next four years, as the market struggles with concerns over potential buyer defaults, risk that suppliers may be unable to deliver on goods and exchange rate fluctuations. Growth is expected to accelerate after 2015 to 7.1 percent until 2020, he said.

Demand for Islamic trade finance products are likely to increase as trade relationships strengthen and are expected to be a growth driver for the overall Islamic finance industry.
In Islamic trade finance, a bank will provide a letter of credit, guaranteeing import payments using its own funds, for a client based on sharing the profit from the sale of the item.

Buchari said sharia-compliant hedging instruments to hedge against currency fluctuations are also among increasingly sophisticated tools being created to tap into demand and secure trade deals. (Reporting by Shaheen Pasha, Editing by Dinesh Nair)